The UK’s largest regional airline, Flybe, is in the midst of last-minute rescue talks an in effort to stave off a collapse. Flying 8.5 million people per year to 170 European countries, the Exeter-based company has been under financial stress for the past couple of years.
In 2018, the company put itself up for sale as it admitted that it was running low on liquidity. A group made up of Virgin Atlantic, Stobart Group, and Cyrus Capital supposedly bought the airline and provided it with 100 million pounds. It is said that this was in exchange for rebranding the airline to Virgin Connect. In March 11, 2019, Flybe was delisted from the London Stock Exchange as a part of its deal to sell all of its share capital.
Where Does Flybe’s Troubles Start?
The company is a tangible result of how Brexit has affected some British companies. According to the airline, most of its expenses are in US dollars while it makes most of its income in Sterling. Consequently, the drop in the GBP to USD exchange rate since the Brexit referendum in 2016 from 1.4500 to where it is now, trading below 1.3000, has heavily weighed on the company’s finances. They have had to make more in order to cover costs simply because GBPUSD is lower.
It also does not help that it is competing in one of the most competitive aviation markets in the world. For instance, easyJet has launched flights from Birmingham to Edinburgh and Glasgow to compete with Flybe. It has also had to compete with trains which do not have added fees like Air Passenger Duty which cost 26 pounds.
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What happens now?
Ticketholders do not need to worry, yet. According to a spokesperson by the airline, “Flybe continues to provide great service and connectivity for our customers while ensuring they can continue to travel as planned.” However, it would seem that the consortium that initially bought out Flybe does not want to pump out more cash. It is reportedly in discussion with the Department for Business, Energy and Industrial Strategy and the Department for Transport for emergency funding. Meanwhile, accounting firm EY is on standby to oversee the Flybe Group.
Aside from the company reminding market participants of the perils of Brexit, it is also said that 2,000 jobs could be at risk. If the airline does collapse, we could see its adverse effect on the economy which is already struggling. The latest GDP report from the Office of National Statistics showed that the UK economy contracted by 0.3% in November. If it does secure the funding it needs, it could only be a matter of time until more of its problems pop up. Or who knows, another British company could be in need of bailing out.
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